Housing 2014: Finance challenges, pricey houses, mixed gov't messages

Monday Morning Cup of Coffee takes a look at news crossing HousingWire's weekend desk, with more coverage to come on bigger issues.

The Motley Fool rarely disappoints, and their take on what could happen next in housing seems to be right on target. Thanks to a weak first half of 2014, Fannie Mae now thinks total home sales will actually be lower in 2014 than they were in 2013, and that 2015 won't be much better.

TMF notes that home sales have been lagging in 2014. They cite the cold winter excuse, but admit that even as the weather thawed, the market didn't pick up quite as much as experts predicted.

“There were two big catalysts last year driving home sales that aren't present anymore. First, for the first half of 2013, mortgage rates were ridiculously low. The 30-year rate dipped to just above 3.3% at one point, and rates remained below 3.75% until summer. Now, even though rates are still very low on a historical basis, at around 4.1%, they are not the magnetic draw they once were,” TMF notes.

Secondly, homes are simply much more expensive now. No matter how low your mortgage rate is, if the home is too expensive, it won’t sell.

Since bottoming in 2012, U.S. home values have risen by more than 25% on average, and popped by nearly 14% during 2013 alone.

“While prospective buyers certainly wouldn't mind if home prices came back down, it could be rough for the economic recovery. Because homes have regained so much of their lost value, many homebuyers once again have positive equity in their homes. And if prices were to decline, millions of U.S. homeowners could once again find themselves underwater, which would be a very bad thing,” TMF notes.

Negative equity eliminates options.

“If you owe more than your home is worth, you can't sell it unless you want to come out of pocket to make up the difference. And, when times get tough, homeowners with equity in their homes are more likely to do anything they can to make their payments and keep their home. Being underwater can make letting the home go into foreclosure seem like a better option,” TMF notes.

The market doesn't need a new influx of foreclosures, nor does it need a lot more people to be "stuck" in their homes at a time when the market could really use more buyers. If prices begin to drop, this could start a dangerous cycle of price drops.

Is the government making it harder for the middle class to buy homes?

The long answer comes in this New York Times article, which addresses a lot of the problems facing homebuyers.

“…lenders say the mixed messages they’re getting from Washington give them no incentive to widen access to credit. The government, determined to prevent a repeat of the irresponsible lending practices that sparked the housing bust, has forced lenders to buy back billions of dollars in loans and continues to trumpet massive legal settlements with the industry. The largest came two weeks ago when Bank of America agreed to pay $17 billion to resolve claims that it sold the government defective mortgages,” the Times reports.

Good stuff.

Ever wonder if it’s harder to get financing for homes that don’t quite fit into a local market? Those unusual homes that are outside the box? The answer, unfortunately, is yes.

Even borrowers with excellent credit may have trouble obtaining sufficient financing to buy homes that are unusual in a market – outside the box, as the New York Times puts it.

Unusual homes can be difficult to value, because appraisers rely on the sales of comparable properties to come up with a price.

Mortgage underwriters may not be satisfied that an appraised value is well supported when there aren’t comps available.

If they are willing to extend any financing, lenders may “carve down pretty significantly what they’re willing to lend,” Tim Sickinger, a senior vice president of Atlantic Residential Mortgage in Westport, Conn, told the New York Times.

Buyers looking outside the box should be prepared to come up with more than the usual 20% down payment.

Take at these insane photos inside this home on the market in Florida. The newly listed palace, with a price tag of $139 million, makes it the most expensive property in the nation, according to slideshow at the LA Times.

"The residence centers on a sweeping, $2-million staircase cased in steel-iron and gold leaf," the article states. "Among the more opulent features are an Imax home theater, a 1,300-gallon aquarium and a subterranean garage with parking for 30 vehicles."

What is this? A school for ants? The “world’s smallest house” (the marketing language may come as a surprise to people in Goa, San Salvador, or Barentu) has gone on sale in London for $450,000.

The one-roomed house is located in a fashionable part of London and it includes a shelf where the new owner will sleep, which is only accessible by climbing up on the kitchen work surface.

No banks were reported closed by the FDIC for the week ending Sept. 5, 2014.

Trey Garrison was a Senior Financial Reporter for HousingWire.com. Trey served as real estate editor for the Dallas Business Journal, and was one of the founding editors of D CEO Magazine. He has been an editor for D Magazine — considered among the best city magazines in the United States — and a contributor for Reason magazine.

This month inHousingWire magazine

Eight years after we began recognizing women for their influential work in the expanding housing and mortgage finance ecosystem, a traditionally male-dominated field, our Women of Influence list is bigger and better than ever! This year, we honor 85 women who are making lasting achievements in each sector of the housing economy. Read on to learn more about these accomplished women and the strides they are making in their industry segments.

Feature

The financial world at large is experimenting with changing its workforce culture in ways not fathomable 10 years ago. For example, in 2011, the dress code for female workers at UBS came to light with unflattering results. In it, the Swiss bank instructed female employees on not just how to dress and how to smell, but also preached the importance for ladies to apply lotion after taking showers. Fast forward to today and fellow Swiss bank, Credit Suisse has now created an official role to boost equal opportunities and create a fair treatment environment. Has the American mortgage industry made similar progress?

Commentary

The conversation around student loan debt and its economic impact on Millennials, those born from 1980 to 1998, has some questioning whether the future of the American Dream is in jeopardy. The nation’s student loan debt has soared to $1.4 trillion, surpassing credit cards in becoming the largest source of personal debt outside a mortgage.